What are consumer staples? They are essential consumer products such as food, beverages, personal products (toothpaste, shampoo, medicine), paper products, and etc. The Consumer Staples Industry Investment Model estimates the price of the Consumer Staples Select Sector SPDR ETF (XLP) which is an index fund that holds consumer staples retailers in the S&P500 Index. Household names such as Walmart, Walgreens, and Pepsi comprise a large part of the index.

When the model is fully developed it will be posted on InvestModels.com's Consumer Staples page under Industry Investment Models. The model will help the general investing public make informed investment decision regarding primarily the Consumer Staples Select Sector SPDR ETF (XLP) but secondarily the consumer staples industry and member stocks.

The Consumer Staples Industry Investment Model Prototype is built with the following data:

Wholesaler Sales (1999 - 2014)

Wholesaler Inventories (1999 - 2014)

Stock Market Performance (1999 - 2014)

The earlier version of the Consumer Staples Industry Investment Model (v1) is less accurate than the prototype uses the following data:

Retailer Sales (1999 - 2014)

Stock Market Performance (1999 - 2014)

The below chart shows the actual XLP price versus estimates from both the v1 and prototype model. Correlation in a nutshell measures model accuracy, the larger the number the better.

Next StepsThe next stage of model development is to backtest the prototype or in other words verify the accuracy of the model using a different time set of historical data (primarily early 1990s). This involves picking another ETF or mutual fund's price that is active in the early 1990s and compare model estimates with historical inputs of wholesaler sales, wholesaler inventories, and stock market performance.

If the backtest is successful I will have the confidence to have everyone use it and look into enhancing it with additional industry forecasts like I do with the Energy Industry Investment Model and its integration with the U.S. Energy Information Administration's 2015 and 2016 forecasts.

As oil prices fall into the $40 - $50 a barrel range, the Energy Industry Investment Model predicts a price of $61.94, but XLE's closing price on 1/24/2015 is $75.37. At the moment I'm entertaining two possibilities. First, dividend investors are buying. XLE is filled with mega cap oil companies such as Exxon Mobil, Chevron, ConocoPhillips that pay a steady dividend. I suspect that investors interested in cash dividends or equity income would be enticed to purchase these stocks to their investment portfolio. To dividend investors, there has just been a price decline and no dividend cuts.

In ConocoPhillips' 2014 earnings release today, CEO Ryan Lance seems to know that dividend investors are an important segment of the company's share ownership. It quoted that his priorities "are to protect [ConocoPhillips'] dividend and base production, stay on track for cash flow neutrality in 2017, and preserve future opportunities." In order to do that they have reduced future capital expenditures. Other companies in the Energy Select Sector SPDR ETF (XLE) have also announced layoffs and capital expenditure cuts.

The question now is whether the price of oil and other energy products will stay low long enough to threaten cash dividends. If that happens, I project XLE's price to move a lot closer to my Energy Industry Investment Model's estimates.

Screenshot from Yahoo Finance showing XLE's dividends steadily rising even as oil prices drop in September and December. December's dividend distribution shows almost no growth. I wonder what March's dividend will be

The second possibility, investors expect the price of oil to rebound. This is supported by the U.S Energy Information Administration's (EIA) estimates for Brent and WTI oil prices. Therefore, the Energy Industry Investment Model predicts that XLE will rise to $83.88 in 2016.

Hello! This is my first blog entry. My intention is to use this blog to provide website updates, comments on how my model development process is going, and thoughts about investing. I published this website on 1/17/2015 and so far I have the following updates: